Title

Presentation

Northern Technologies International Corporation misses on earnings expectations. Reported EPS is $0.01 EPS, expectations were $0.02.

Operator: Good morning. As part of the discussion today, the representatives from Northern Technologies International Corporation will be making certain forward-looking statements regarding Northern Technologies International Corporation’s future financial and operating results, as well as their business plans, objectives, and expectations. Please be advised that these forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and that Northern Technologies International Corporation desires to avail itself of the protections of the safe harbor for these statements. Please also be advised that actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in Northern Technologies International Corporation’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and recent press releases.

Please read these reports and other future filings that Northern Technologies International Corporation will make with the SEC. Northern Technologies International Corporation disclaims any duty to update or revise its forward-looking statements. I would now like to turn the call over to Patrick Lynch, CEO. You may begin.

Patrick Lynch: Good morning. I am Patrick Lynch, Northern Technologies International Corporation’s CEO. I am here with Matt Wolsfeld, Northern Technologies International Corporation’s CFO. Please note that a press release regarding our second quarter fiscal 2026 financial results was issued earlier this morning and is available at ntic.com. During today’s call, we will review key aspects of our fiscal 2026 second quarter financial results, provide a brief business update, and then conclude with a question-and-answer session. Please note that when we discuss year-over-year performance, we are referring to the second quarter of our fiscal 2026 in comparison to the second quarter of last fiscal year. Our results were in line with expectations.

We continued to execute against our long-term growth strategy. Second quarter performance was driven by solid top-line growth across our businesses, including record second quarter ZERUST oil and gas net sales, with year-over-year growth across all geographies, reflecting the investments we have made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry. We have also seen continued strength at Northern Technologies International Corporation China, despite the seasonal impact of the Lunar New Year, and achieved another solid quarter of Natur-Tec growth. Overall, second quarter and year-to-date results reflect the resilience of our business model and the increasing value customers place on our corrosion prevention and compostable plastic solutions.

While the macro environment, including geopolitical tensions in the Middle East, ongoing supply chain pressures, and continued challenges in the European economy, has become more uncertain, we remain confident in the direction of our business and the strategies we are executing to drive long-term value. The diversity of our end markets, geographic footprint, and product portfolio positions us well to navigate near-term volatility. As we move through 2026, we expect continued sales growth and improved profitability, supported by stable trends in North America and ongoing strength in Northern Technologies International Corporation China, ZERUST Oil and Gas, and Natur-Tec. So with this overview, I will examine the drivers for the second quarter in more detail.

For the second quarter ended 02/28/2026, our total consolidated net sales increased 15.3% to $22.0 million as compared to the second quarter ended 02/28/2025. Broken down by business unit, this included a 72.1% increase in ZERUST oil and gas net sales, an 11.2% increase in ZERUST industrial net sales, and an 8.1% increase in Natur-Tec’s net sales. Turning to our joint venture sales, which we do not consolidate in our financial statements, total net sales for the fiscal 2026 second quarter by our joint ventures increased year over year by 18.6% to $23.5 million, reflecting improved year-over-year demand across many of our joint ventures. We continue to closely monitor trends across our European markets for signs of stabilization following years of subdued demand.

As governments begin to implement targeted economic stimulus packages, we expect that any economic recovery from these stimulus packages will lead to a positive impact on our joint venture operating income in future periods, especially in Germany. Improving sales trends continued at our wholly owned Northern Technologies International Corporation China subsidiary. Fiscal 2026 second quarter net sales at Northern Technologies International Corporation China increased by 18.5% to $4.4 million, demonstrating strong demand in this geography. Furthermore, given that the majority of Northern Technologies International Corporation’s China sales are for domestic Chinese consumption, we believe Northern Technologies International Corporation China’s exposure to U.S. tariffs is limited.

We expect demand in China will continue to improve in fiscal 2026, helping to support higher incremental sales and profitability in this market. We believe that China will likely become a significant market for our industrial and bioplastic segments, so we will continue to take steps to enhance our operations in this geography. Now moving on to ZERUST Oil and Gas. ZERUST Oil and Gas sales were $2.7 million, a second quarter record, and increased 72.1% from the same period last year. This growth reflects the investments we have made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry. A highlight of increasing ZERUST Oil and Gas adoption includes the three-year contract with an estimated total value of approximately $13.0 million we announced in November 2025 for a major offshore project with a leading global EPC company.

We expect this project to ramp throughout the current fiscal year and continue through calendar 2028. This is a significant validation of our engineering capabilities, the scalability of our ZERUST Oil and Gas business, and the reputation we have built as a trusted partner to leading offshore operators. Brazil represents one of the fastest-growing deepwater markets globally, and we believe this win provides a strong foundation for continued growth and expansion across international oil and gas markets. During the second quarter, we also experienced higher year-over-year oil and gas sales in the Middle East, North America, India, and China from both new and existing customers, reflecting the contribution of recent investments we have made to enhance our sales team and add resources to support future growth.

This has improved our sales pipeline; the size and number of opportunities have expanded. Our pipeline includes global opportunities to protect above-ground oil storage tanks, pipeline casings, and offshore oil rigs from corrosion. The nature of this industry will always cause certain fluctuations in ZERUST Oil and Gas sales; nevertheless, we still expect to see ZERUST Oil and Gas sales and profitability improve significantly in fiscal 2026 as we continue to leverage these investments and rein in operating expense growth. Turning to our Natur-Tec bioplastics business, second quarter Natur-Tec sales were $5.4 million, representing an 8.1% year-over-year increase in Natur-Tec sales. We continue to pursue several larger opportunities in North America and India for our Natur-Tec solutions that we believe hold significant promise to benefit our sales in the coming quarters, including advancing the compostable food packaging solution mentioned on prior calls.

Overall, we believe Natur-Tec is a best-in-class compostable plastic business that is well positioned for significant future growth in the United States and abroad, and we expect sales to continue to expand throughout the year. Before I turn the call over to Matt, I want to acknowledge the hard work and dedication of our global team of both employees and joint venture partners. Our success and our ability to navigate more complex economic periods are direct results of their efforts. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2026 second quarter.

Matt Wolsfeld: Thanks, Patrick. Compared to the prior fiscal year period, Northern Technologies International Corporation’s consolidated net sales increased 15.3% in the fiscal 2026 second quarter, the strongest year-over-year growth rate we have achieved since fiscal 2022 because of the trends Pat reviewed in his prepared remarks. Sales across our global joint ventures increased 18.6% in the second quarter. Joint venture operating income in the second quarter increased 19.8% compared to the prior fiscal year period, primarily due to higher sales at our joint ventures. Total operating expenses for the fiscal 2026 second quarter increased 7.7% to $9.5 million, primarily due to higher selling, general, and administrative expenses, partially offset by a reduction in research and development expenses.

Operating expenses as a percentage of second quarter sales were 43.2% compared to 46.2% in the prior fiscal year period. We expect quarterly sales to grow faster than operating expenses as we continue to leverage recent investments and upgrades across our global operations. Gross profit as a percentage of net sales was 35.7% during the three months ended 02/28/2026, compared to 35.6% during the prior fiscal year period. Higher gross margin for the second quarter was primarily due to the increase in sales. We expect gross margin to improve sequentially during fiscal 2026. As a reminder, during the second quarter last fiscal year, Northern Technologies International Corporation recognized $1.1 million in other income due to the receipt of a one-time cash employee retention credit payment.

No other income was recognized in this fiscal year’s second quarter. Northern Technologies International Corporation reported a net loss of $35,000 or $0.00 per share for the fiscal 2026 second quarter compared to net income of $434,000 or $0.04 per diluted share for the fiscal 2025 second quarter. For the fiscal 2026 second quarter, Northern Technologies International Corporation’s non-GAAP adjusted net income was $70,000 or $0.01 per diluted share, compared to a non-GAAP adjusted net loss of $300,000 or a loss of $0.03 per diluted share in the fiscal 2025 second quarter. A reconciliation of GAAP to non-GAAP financial measures is available in our second quarter fiscal 2026 earnings press release that was issued this morning. As of 02/28/2026, working capital was $20.2 million, including $5.6 million in cash and cash equivalents, compared to $20.4 million, including $7.3 million in cash and cash equivalents, as of 08/31/2025.

As of 02/28/2026, we had outstanding debt of $14.3 million. This included $11.3 million in borrowings under our existing revolving line of credit, compared to $12.2 million as of 08/31/2025. Reducing debt through positive operating cash flow and improving working capital efficiencies is a strategic focus for fiscal 2026 and beyond. On 02/28/2026, the company had $29.7 million of investments in joint ventures, of which 51.8%, or $15.4 million, was in cash, with the remaining balance primarily invested in other working capital. In January 2026, Northern Technologies International Corporation’s board of directors declared a quarterly cash dividend of $0.01 per common share that was payable on 02/11/2026 to stockholders of record on 01/28/2026.

To conclude our prepared remarks, we believe our second quarter results demonstrate the continued strength and resilience of our business, led by strong year-over-year sales growth and improving year-to-date profitability. While the macro environment remains uncertain, we are encouraged by the underlying trends across our business and the momentum we are seeing across our operations. As we move to the balance of fiscal 2026, we expect revenue growth to increasingly translate to improved profitability supported by operating leverage, disciplined expense management, and continued focus on working capital efficiencies and debt reduction. We believe these factors position us well to navigate near-term macro uncertainty while driving stronger financial performance and cash flow generation over time.

With this overview, Patrick and I are happy to take your questions.

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Operator: As a reminder, to ask a question, please press 1-1 on your telephone and wait for your name to be announced. Our first question will come from the line of Timothy Clarkson of Van Clemens. Your line is open, Timothy.

Timothy Clarkson: Hey, guys. Obviously a really good quarter revenues-wise. Earnings still not quite there, but maybe you can talk a little bit about the investments that have been made over the last year or so and where you think the investments have been worthwhile.

Matt Wolsfeld: I would say there is what I will call the long-term investment and the short-term investment. The immediate investments we made over the past two years were really the hiring of a lot of people and starting the new subsidiary that we have in the UAE, specifically with the oil and gas opportunities there, and we have seen success from that entity. Part of what has fueled the oil and gas revenue increase has been some of the revenues that we have achieved in the Middle East. If I look at the breakout of oil and gas revenue, I think part of the expectation was that the increase was due to the Brazil contract, which is true, but we are really looking at a non-Brazil increase this quarter of about 85% compared to the second quarter last year and a Brazil oil and gas increase of about 55% this year compared to Q2 of last year.

The growth that we are seeing in oil and gas is not localized to Brazil; it is happening based on opportunities in North America, the Middle East, and other regions. We certainly get the sense that we are starting to get traction in that area from the investment we made over the past two years. At this point in time, we are happy with those investments. We are at a point now with oil and gas where it is a transition from the work that we have been doing behind the scenes to really focusing on closing business and adding revenue to the top line that will ultimately flow down to an earnings-per-share standpoint. The other investments we have made will come through the investing section of the cash flow over the past couple of years, where you look at purchasing the building next door and making improvements to that building and adding both warehousing capability and manufacturing capability to our facility, which helped us maintain the gross margins on the new products that we have so we do not have to outsource and can achieve better gross margin for those products.

We have spent about $4.0 million plus on that facility, bringing in manufacturing capabilities here. Additionally, over the past two years, we implemented a new SAP system, which certainly has been a little bit more painful to deal with, but long term I think the data that we are getting out of that SAP system and the way that we will be able to integrate things worldwide with how the company is set up with the subsidiaries around the world and the joint ventures is going to give us much better data to be able to grow from a total global company perspective. Those are really the three main investments we have made over the past two years. Although a lot of them have been difficult and certainly added to operating expense over the past two years, I think that is really what is going to fuel the company for the coming three to five years.

Timothy Clarkson: Obviously, China is doing really well. There was some concern that as they transition to electric cars there would not be very much demand for ZERUST. It looks like there is still plenty of demand for ZERUST, electric cars or not.

Matt Wolsfeld: China has done well, surprisingly well. If I look back at where we were selling in China when we established this subsidiary in 2014, 2015, 2016 compared to where we are now, there has been a transition between supplying the U.S.-based or European-based automotive companies to now focusing on supplying for domestic consumption, which is good given the volatility of what happens in China from an export standpoint. A lot of the increases that we have seen in China have been for domestic consumption of the ZERUST product.

Timothy Clarkson: One last question. In general on the R&D end, is the R&D spend particularly on ZERUST-type products or on the compostable stuff, or some of both? Are there some new emerging technologies coming from all the R&D spending?

Patrick Lynch: From the HVAC side in particular, we are very positive on what is going to happen in the food packaging, in that we are extremely confident right now that that should fit.

Timothy Clarkson: And that was creating the compostable packaging that does not allow moisture in, right?

Patrick Lynch: Right.

Timothy Clarkson: No one else has that product, right?

Patrick Lynch: Right.

Timothy Clarkson: One last question I will ask is, historically Northern Technologies International Corporation would net 10% at kind of optimum sales level. Is that still the goal of the company, 10% after tax?

Matt Wolsfeld: It is difficult to look at it just from the standpoint of what the traditional net is because, obviously, the joint venture operating income that comes in is not included from a top-line standpoint. The big difficulty we have in the company is if you look back at the historical contributions from the joint ventures, it was significantly higher. Just looking at what we previously received from the German joint venture, that would be anywhere from $0.10 to $0.12 per share per quarter coming in, whereas now you are looking at $0.05 or $0.06 per quarter coming in. What we are seeing is that as we get back to what we expect to see in Q3 and Q4, a significant increase in the earnings compared to Q1 and Q2, it is really a matter of how the Natur-Tec business, the oil and gas business, and the industrial business offset some of the declines we have seen from the difficulties at the German joint venture, specifically dealing with the German economy.

They have done a good job with what they are dealing with, given the difficulties with energy prices and things like that in Germany specifically, but it is really a matter of getting the income from the new businesses and seeing those take off to augment what have been a decline in Germany.

Patrick Lynch: Thanks, Tim.

Operator: Our next question will be coming from the line of Jake Patterson of Atlanta Investment Group. Your line is open, Jake.

Jake Patterson: Hey, guys. Just a couple quick ones. First off, on gross margin, I know you had guided for sequential expansion and are continuing to guide for that. We saw margin kind of flattish, even down slightly quarter over quarter, and it looks like a lot of that was from Natur-Tec. I know one of the weaker margins we have seen in at least the last couple of years. I was curious what happened there and the outlook for the second half going forward on that margin.

Matt Wolsfeld: There are a lot of different factors that have impacted Natur-Tec if you look back four or five quarters. Historically, it is going to be a more volatile gross margin. The reasons for the volatility are twofold. One is fluctuating input prices from the materials that we are using. Two, a bigger component is that we are doing global manufacturing for the Natur-Tec product, and there has been a lot of impact from tariffs and the change in tariffs that we have in place. When we were focused more on manufacturing in China and there was volatility with tariffs there, we saw some increases and then decreases. We are now set up, or will be set very quickly, where we are able to do manufacturing in China, Vietnam, and India, and longer term looking for some North American manufacturing capabilities for Natur-Tec.

The other component to the gross margin is the selling price. We have seen that the Natur-Tec end products operate in a competitive environment, and the companies we are dealing with are dealing with razor-thin margins. At times, we have had to decrease price to remain competitive in some of those larger bids. The goal is to move forward with selling more of the proprietary resins compared to the end products that are in the more competitive space. Ultimately, there are many input factors that impact the gross profit for Natur-Tec specifically. The goal is to hold and increase gross margin as much as possible; it is just sometimes difficult depending on the region.

Jake Patterson: Still on the margin side, ZERUST—just looking at the oil and gas mix relative to last year, it is 500 basis points higher and gross margin is down year over year there. Is that still any impact from that supplier issue you guys had in the first quarter? It did not seem like as much improvement as I would have thought.

Matt Wolsfeld: We did continue to have the impact on inventory and the impact from supplier issues we talked about in Q1 and the carryover to Q2. The other difficulty we have that has not impacted us from a second quarter standpoint is what is going to happen in Q3 and Q4 given what is going on with energy prices and polyethylene prices worldwide. We have dealt with this before, whether during COVID or other time periods. We do our best to pass through increases in raw material prices to customers as much as possible. We are seeing an increase in some of the main base materials that go into our polyethylene-based products, so it is something to watch out for in Q3 and Q4.

Jake Patterson: I saw that as, like, down the line. I think resin prices are up 60% or so, so that should be interesting to see. I guess one last one: you mentioned that the Middle East contributed to some of your oil and gas revenue growth, and they were up, I think, like 80% or something year over year. When you go look at your investor presentations, I think you break out the geographies for ZERUST Oil and Gas, and it only lists Brazil and North America, at least as of November of your fiscal 2025 year. I was curious—it sounded like there was some Middle East revenue from that geography last year, but I am assuming it is still pretty minimal at this point?

Patrick Lynch: I would not say it is minimal. We previously were selling to some of these Middle East opportunities and had larger contracts with British Petroleum in Georgia and some other areas like that. We have historically sold to Reliance in India, and these sales were happening through North America. Now we are pushing some of these opportunities to be more localized in that area because they are better set up to serve that region. Those previously were going through North America. Going forward, once the subsidiary in the UAE is fully up and running, fully functional, and operating completely independently, we will break out the revenues for that area in the investor presentation. The other thing that has changed is we are using the subsidiary network that we have in place to go after the oil and gas opportunity.

I mentioned specifically opportunities in India, China, and Brazil. These are all areas where we want to go after oil and gas opportunities with those subsidiaries. Some of them are also bringing in and hiring people that specialize in the oil and gas space to be able to go after those opportunities there. We will establish a regional hub in Asia, as we talked about, and in the Middle East, which makes sense. Ultimately, we are looking to push those oil and gas products out through all the subsidiaries that we have to take advantage of that network that we spent so long to build up.

Jake Patterson: Gotcha. That makes sense. Cool. That is it for me. I appreciate it.

Patrick Lynch: Thanks, Jake.

Operator: Our next question will be coming from the line of Gus Richard of Northland Capital Markets. Gus, your line is open.

Gus Richard: Thanks so much for taking the question. I want to focus on the impact of the war. You guys reported last quarter, and last quarter ended before the war started. There has been a lot of change in the world, and I am first curious if that is changing regional demand in terms of where companies or countries or regions are getting more active or less active.

Matt Wolsfeld: There are a bunch of different impacts from what is happening across the board. You have the very up-close impact where the individuals that we have in the subsidiary in Dubai are getting air raid sirens and are locked in place and told not to go out at various times, and they are seeing this firsthand. A lot of the areas where they are going to sell products and do installations are on lockdown. You do have the opportunity that with some of the infrastructure that has been blown up, there will be opportunities where there is rebuilding and increased spending in those areas where they will need some corrosion protection and things like that. Then you have the secondary impact of what is happening with supply chain, energy prices, and things like that with what is going on in the Strait and relationships, which is causing energy prices to increase, which is causing raw material prices to increase, which is impacting not just Northern Technologies International Corporation, but certainly all the joint ventures and the subsidiaries.

On top of that, you have subsidiaries that are further away—take, for example, Brazil—where they potentially have supply constraints from the standpoint that raw material needs to be shipped there. There are potentially shortages of the product. We are not seeing shortages of product in North America; prices are going up, but we are not seeing shortages. We are looking at certain regions around the world where they are potentially running into issues of even having raw materials in place to be able to make the product, which is different than just price increases. There are a lot of different ways where what is going on in the Middle East with the war is impacting the company. It is certainly a concern, but I think we are in a position where we are able to deal with those issues.

If I look at what is happening in Brazil, we had a conversation about supply lines. We are fortunate in the way we have other subsidiaries and other entities around the world that could potentially meet customers in Brazil, meet their demand, and provide product to them. We are not sole-sourced in areas. It allows us flexibility and the ability to pick and choose what we want to go after and have options as far as picking lowest-cost suppliers and steps like that.

Gus Richard: You have increases in input prices. Are you able to pass that increase on to your customers? How are you adjusting to higher input costs, and how receptive are your customers to that, or contractually?

Matt Wolsfeld: The good thing we have is that initially, when things kicked off, we did build up inventory a little bit. We are doing our best to hold prices where we can, but we also do not want to be in a situation like we had in COVID where we reacted too slowly and ultimately did not raise prices for six months and we had issues. We are monitoring prices, and we are looking at raising prices where we can. Specifically, when we are selling custom-made products, based off of the price that we pay, it is easier to push that increase on the customers. The other benefit is it is not like this is an anomaly where the customers do not understand what is going on from an international standpoint and raw material pricing standpoint.

They see what is happening at the gas pump. They can read and hear what is happening from supply chain and prices going up. It is easy to come in and explain and say, look, the price of polyethylene has increased by $0.20. This is how your price of our product is increasing and why. It is a matter of walking the customers through it and explaining what is happening, but we can point to very clear data that shows exactly how our input prices are increasing. That certainly helps with passing those increases on to customers and an increased final price of the die.

Gus Richard: You talked about operating leverage. Does the operating leverage come from holding OpEx flat and rising revenue, or is there an opportunity to trim your OpEx? A little color there would be helpful.

Matt Wolsfeld: The goal from a leveraging standpoint is to increase revenue. If we look forward at the backlog that we have and the projects that we have, the expectations are that our third and fourth quarters will be significantly better than first and second quarter. We have historically had very strong third and fourth quarters from a revenue standpoint, and I would expect that trend to continue. Second quarter is traditionally our slowest quarter from a revenue standpoint. The reason why revenues look good in the second quarter this year is because second quarter last year was down so much and was such a bad quarter from a comparative standpoint. Given where we are at from a backlog and expected projects we have to close, third and fourth quarter should really show how the company is going to get back on track from an earnings standpoint and profitability standpoint, where you can see how we are going to utilize that leverage and push as many gross margin dollars to the bottom line as possible.

Holding OpEx flat or as low as possible is certainly the objective, and not necessarily cutting expenses at this point.

Gus Richard: The last one for me: looking at the balance sheet, cash has declined the last five quarters in a row, or net cash has declined. Your debt has increased; the cash has kind of stayed the same. I want to understand what was driving that decline. Was it the investments in the business? What is the plan to get cash back to a better place? Can you repatriate some of the cash in some of the JVs? Any thoughts there?

Matt Wolsfeld: There is a three-pronged approach. One is to bring back, from a dividend standpoint, cash at the subsidiaries and at the JV level to help increase the amount of cash we have here and ultimately get at the line of credit. The number one thing we need to do is increase earnings. If you look back quarter by quarter at what we are doing from an earnings standpoint, you are not going to be able to build your cash back. In fiscal 2025, we had virtually no earnings. In fiscal 2024, we generated $0.60 a share, which helped from a cash standpoint, but everything we did in 2025 from an earnings standpoint hurt us. A big component to our income is the equity income, which obviously is not cash coming in; it is the dividends that come in from the equity income that ultimately get you there.

The goal is to increase earnings, which I think is what you are going to see in Q3 and Q4, which will help pay down the debt. The other item is the investing section from a cash flow standpoint. We made significant investments in PP&E items—the building next door—and the SAP system that we had cash out the door to fund. The actual investments that we are going to be making from a cash flow standpoint over the next few years are going to be significantly smaller than we have done in the past two years, and that is also going to significantly put more cash back on the books. I think the trend is going to start in Q3 and Q4 to work on reducing the debt exposure.

Gus Richard: Got it. That is it for me. Thanks so much.

Matt Wolsfeld: Great. Thanks, Gus.

Operator: I am showing no further questions. I would now like to turn the call back to management for closing remarks.

Patrick Lynch: I want to thank everybody for coming. Have a good morning, and wish you a good day.

Operator: This concludes today’s program. Thank you for participating. You may now disconnect.

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